Bitcoin Bubble: Not Bursting Now

Touted as the best invention in history since the Internet, the Bitcoin business has also been dubbed as a “mathematical framework that is free of politics and human error.” The blistering speed of the booming Bitcoin is evident from its rise to over $1,000 a unit at November end, from less than $15 in January of this year.

The concept of Bitcoin sprouted in 2008 from a paper published under the fictitious name of Satoshi Nakamoto. The idea was officially implemented the following year. Digital currency gained distinction in 2012, and has not looked back ever since.

Is It Overvalued?

The price of cryptocurrency saw its ebb and flow, hitting $230 in April, falling below $70 in July, and then peaking at $1,000 in November. The only thing constant is its huge flock of followers. However, the latest jump – symbolic of the surging Chinese demand – looks like an archetypal bubble.

With Bitcoin touching such unforeseen heights, mainstream adoption cannot be far away. In a major victory last month, digital currencies got U.S. regulatory signals of being accepted as legitimate payment alternatives. Indications that Bitcoin growth will not be disrupted by regulatory intervention, strengthened the rally in the price of the cryptocurrency.

The Beauty of Bitcoin

The best part of Bitcoin is that it’s a peer-to-peer currency not regulated by any central bank, but based on digital tokens with no intrinsic value. The value of a bitcoin depends on a distributed system, based on a transaction ledger which is cryptographically verified and jointly maintained by the currency’s users.

Bitcoin transactions are free from intermediaries and designed to ensure increased money supply only at a fixed rate that slows over time and then stops altogether. Also, anonymity is possible with the right precautions. This has increased the appeal of Bitcoin among geeks, libertarians, drug dealers, speculators and gold bugs.

However, with the recent regulatory acceptance, cryptocurrency has gained popularity. Further, building on its success, many other altcoins have emerged in recent times. Litecoin, Peercoin, Anoncoin and Zerocoin are only to name a few.

Authorities Cracking the Whip

The worldwide use of virtual currency has left regulators with a nagging headache thanks to the risky dealings prompted by it. In June, another virtual currency firm, Liberty Reserve was hauled up by regulators on allegations of money laundering.

In March, the Federal Financial Crimes Enforcement Network issued regulations for virtual currencies, entailing them to register with the government. This means that every source of virtual currency has to worry about conformity to certain standard laws.

This has resulted in noticeable changes in the digital currency business. Companies like Perfect Money and WebMoney are no longer accepting U.S. customers. Further, some organizations are steering clear of Bitcoin exchanges. Certain consumer Internet companies such as Facebook (FB – Analyst Report), eBay (EBAY – Analyst Report), Amazon (AMZN – Analyst Report) and Netflix, Inc. (NFLX – Analyst Report), which use virtual money, could be hit by the regulations.

The overwhelming success of digital currency has been the foundation of the rip-roaring growth in online money transmission business. Prosecutors over the world will keep a watchful eye on this booming business. But as long as online games as well as dating and shopping sites gain popularity, virtual currency will not lose its luster.